Cintas (NASDAQ: CTAS)
is down just over 1% the day after it reported strong earnings
. On the top line, the company posted revenue of $2.17 billion which was up from the $2.08 billion forecast by analysts. The bottom line number was equally strong. Earnings per share (EPS) came in at $3.39 which was significantly higher than the forecast of $3.13.
- Cintas notched a double beat in earnings, but its forward guidance is the real story.
- There are always good companies to invest in during a bear market.
- As an exclusive stock trade, there may be better options.
- 5 stocks we like better than Cintas
But the really notable part of the company’s earnings report is that it raised its guidance for the rest of 2022. If this was happening a year ago, or even two years ago, many investors wouldn’t have thought anything about it. In fact, CTAS stock might have been falling because the results weren’t “good enough.” But there aren’t a lot of companies that are beating on earnings and raising their guidance. Cintas did that. And that’s the lesson that investors should remember.
There are going to be companies that perform well even during a bear market. But finding them is going to require more effort. Cintas has a couple of factors working for it. This article will explore a few reasons why Cintas may be a good option for long-term investors, and why there may be better options for short-term traders.
A Strong Customer Base
As Dave Gilreath, chief investment officer and portfolio manager for Innovative Portfolio’s mentioned on The MarketBeat Podcast, the workers that Cintas is supplying uniforms for are essential workers. Remote work is not an option for them. And, with factory output showing signs of increasing in the country, there’s another reason to believe in the company’s forecast.
And some of it is because the company is diversified in many areas such as personal protective equipment (PPE). One example of this is the company’s Ready for the Workday program allows businesses to have essential products and services delivered in a contactless way.
It’s interesting to note that Cintas, which is largely seen as a company that would depend on in-person work saw its revenue increase on a sequential and year-over-year basis during the pandemic. Part of this was, as Gilreath noted, because it captures essential workers.
But capturing revenue and making efficient use of it are two different things. Cintas scores well on several key profitability metrics such as Return on Equity, Return on Assets, and Profit Margin. And the company has been growing its free cash flow (FCF) at an impressive pace.
A Growing Dividend
Cintas falls into the category of Dividend Aristocrats. This category is made up of companies that have increased the dividend they pay for at least 25 consecutive years. Cintas has now managed to increase its dividend for 38 consecutive years.
With a yield of just over 1% (1.19%), the stock isn’t one that may catch the attention of dividend investors. But once again, I’ll point out something Gilreath mentioned. A significant reason for the low yield is that investors have received a 169% gain in the CTAS stock share price over the past five years.
The Stock May be Overvalued in the Short-Term
I’ve given long-term investors several reasons to look at Cintas as a company that can help them weather the current bear market. But if you’re a short-term trader, I’ll admit there may be better options.
CTAS stock currently trades at a P/E ratio of over 30x earnings and while it’s trading in the middle of its 52-week range, it has met resistance on the upper end of that range twice in the last year.
That leaves the company little margin for error at a time when the company admits it faces higher operational expenses. So far, the company has been able to offset that with higher prices and growth in new customers. But if the country faces a prolonged recession that model will be put to the test.
Before you consider Cintas, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Cintas wasn't on the list.
While Cintas currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.
View The Five Stocks Here
MarketBeat's analysts have just released their top five short plays for December 2023. Learn which stocks have the most short interest and how to trade them. Click the link below to see which companies made the list.Get This Free Report